Using a Bridge Loan to Buy Your Next Home in South Florida

Using a Bridge Loan To Buy Your Next Home in South Florida

When you are buying a home, you have a few different options for financing. The most obvious of these is a conventional mortgage with either a fixed or variable rate. However, there are some circumstances in which this may not be the best choice or even possible. In some cases, using a bridge loan is the better option. Understanding this useful form of financing and its benefits will enable you to make well-informed decisions about buying a home in South Florida.

What Is Bridge Lending?

Bridge financing is essentially a type of loan that helps to close the gap between your current financial situation and your next loan. In other words, it is used to help secure long-term financing. It is used for real estate purchases, renovations and refinancing. Additionally, there needs to be real estate as the collateral on the loan.

Typically, in a real estate purchase, bridge financing is used to cover all or part of the costs of a new property while selling your current property. So, if you are moving primary residence, you could use bridge lending to help with the costs of the new home while you sell your current home.

These loans are typically very short and have high interest rates. However, their total cost is more contained than you may expect because of the short payoff time.

How Does Bridge Financing Work?

As mentioned, bridge financing is asset-backed. This means that it is secured against the property you currently own, almost always real estate. For residential real estate deals, this will typically be a loan secured by your home equity.

There are a few ways that it can work. You can use the loan as a way to pay off your current mortgage, allowing you to secure financing for the new property. Alternatively, you can use the loan for a down payment on the new property.

In either case, you will be used your equity in your current home to help make buying the new home possible. Typically, the bridge loan is paid in full once the original property has been sold.

How Do Bridge and Hard Money Loans Differ?

Hard money loans are very similar to bridge financing. In fact, bridge lending is often considered to be a subset of hard money lending. However, there are some key differences.

First, hard money loans are financed by private capital. In other words, they are not offered by banks or other traditional lenders. This allows them to avoid some of the restrictive requirements that banks have to follow. Bridge financing can be funded through private capital but may also be offered by a bank.

Second, hard money lending is more flexible in how you use the money. Conversely, bridge financing is used solely for real estate. Furthermore, while both are short-term loans, bridge lending is particularly intended for situations in which it can “bridge the gap.”

What Are the Benefits of Bridge Financing?

This is a valuable form of financing in many situations. These are a few of the reasons you may consider using bridge lending:

  • Fast: One of the main characteristics of bridge financing is that you can secure a loan quickly. Typically, the turnaround is a couple of weeks. In some cases, it can be just a few days. This means that you can secure the financing you need substantially faster than the months needed to close a traditional mortgage.
  • Avoids the Need for a Contingency Offer: When you use bridge lending to help with your purchase of a second property, you can avoid needing to make a contingent offer. In other words, the seller can be confident that your offer will be moving forward. This can put you at a significant advantage compared to people who need to sell their homes to fund their offers.
  • Helps You Avoid Delays: When you use bridge financing, you can avoid the delay of needing to sell your home. If there is a time-sensitive opportunity available, you can move forward with it. In turn, this can potentially mean saving substantial amounts of money or getting the perfect home due to your fast funding.

How Can Bridge Financing Help With Buying a Home?

There are a few ways that bridge lending can help you with your next home purchase. As mentioned, you can either use the money to pay off your current home mortgage or use it to help with the purchase of your new home directly.

In the case of paying off your current mortgage, you have a few options. You can refinance your current mortgage with some additional money from your home equity (a cash-out refinance). This will allow you to pay the down payment on the mortgage for your new home. Alternatively, you can simply pay off your current mortgage and make the down payment another way. In certain circumstances, this will help you to secure a more favorable mortgage on the new home.

Alternatively, you can use bridge financing to cover the new property. Depending on your home equity situation, you can either borrow a down payment on the new home or potentially buy it outright.

No matter how you use your bridge loan, there is one major upshot: you will be able to secure financing for the new home without selling your current home. For the vast majority of homeowners, getting the down payment to buy a new home requires selling their current home. In turn, this requires a contingency offer on the new home. Since a contingency offer can fall through if you are unable to sell your home, it is less attractive to a seller.

Therefore, using a bridge loan can help you make a more competitive offer. Depending on the market, you could save some money or even just have a chance at getting your offer accepted.

What Are the Alternative Loan Options?

Of course, there are many other options beyond bridge financing that can help you with buying a new home in South Florida. These are the three major options available:

  • Cash Down Payment: If you have some cash on hand, you can make a regular down payment on your new home. Traditionally, lenders have asked for 20% down. However, there are many more flexible options available. In some cases, if you make a smaller down payment, you may find yourself needing to pay for private mortgage insurance, which can increase your monthly payments.
  • Home Equity Line of Credit: If you have some equity in your home, you could use a home equity line of credit to cover your down payment. A HELOC allows you to borrow against the portion of your home that you own. It functions a bit like a credit card in that you can use it for all sorts of reasons, and you have a limit that you can borrow against in whatever amount you need.
  • 80-10-10 Loan: This is sort of line a hybrid between a cash down payment and bridge financing. If you want to secure a loan but don’t have 20% to put down, you could put down 10% and borrow the additional 10%. This is two mortgages (one covering 80% and one covering an additional 10%). You can then pay off the second mortgage when you sell your current home. The difference between this and bridge lending is that the 10% loan is secured against the new home, not the original one.

Should You Take Out a Bridge Loan?

Bridge financing can be a valuable tool for many people trying to buy real estate. It has a lot of benefits, especially for people who want to secure a deal or who aren’t ready to sell their home just yet. However, it also has some drawbacks.

On the one hand, you could potentially save money on your new home. Having a non-contingent offer means that you can usually offer a little less and still be competitive. Additionally, you will be able to move more quickly on opportunities, meaning that you may be able to snatch up a good steal.

Conversely, using bridge financing could mean that you end up paying your original mortgage, the bridge loan and the new mortgage all at once. Plus, due to the short terms, bridge financing tends to carry high monthly payments (although some are designed as interest-only payment models). If you are unable to sell your original home in a timely fashion, this can become an untenable situation.

You will need to carefully evaluate your options. Getting the timing of selling a home and buying a new one to line up properly can be challenging. When things don’t work out, you may end up sinking time and money into a deal that simply falls through. So, consider using bridge financing but make sure you understand how it works.

Get Started With Bridge Lending on South Florida Real Estate

Discover more about bridge loans today. With HML Solutions, you could get the right deal on a bridge loan for your new home in South Florida. Contact us to learn more.

Understanding the Difference Between Private Money Loans and Hard Money Loans

Understanding the Difference Between Private Money Loans and Hard Money Loans

Hard money loans and private money loans are two different types of alternative financing. When a business has capital needs that traditional lenders such as banks can’t meet, alternative financing can provide a practical solution.

It’s fairly common for modern businesses to run into this situation due to the strict and often exaggerated requirements many banks have for loan approval. In those cases, having an outside lender available can keep business operations running smoothly and allow owners to boost company growth.

Choosing the right type of alternative financing matters. The more you understand the pros and cons, the better equipped you are to make a great decision and save money. What are the differences between hard money loans and private loans? When are they a good choice for your business?

What Are Hard Money Loans?

Hard money loans are also known as asset-based lending. Sometimes, they’re called bridge loans. This type of financing relies on a business asset to act as collateral for the loan. Many business assets can be collateral: property, inventory, heavy machinery, construction equipment, vehicles and (sometimes) jewelry. Real estate is the most common type of collateral used for ABL financing.

How Does Asset-Based Financing Work?

With a hard money loan, the main factor that affects your ability to get a loan is the asset you choose and its value. This collateral needs to be able to cover the cost of the loan as well as any insurance, closing costs or other fees. It’s also important for assets to be something valuable that is relatively easy to sell.

Next, the lending company has the asset appraised. The loan offered is based on a percentage of the item’s as-is value. You decide if the amount covers your needs, and sign the necessary paperwork if you agree. Funds are transferred to your bank account quickly and you can spend them as you see fit.

What Are Private Loans?

Private lenders make up a large category of non-traditional financing. Angel investors, venture capitalists, friends, family members, businesses and other sources are types of private lenders. They’re different from conventional loan sources such as banks both in loan types and loan requirements.

A private loan can have virtually any kind of terms imaginable. Some family members may give you a smaller loan with no interest whatsoever. VCs and angel investors may want some type of equity in your business in exchange for money. Other private lenders offer short- and long-term financing but with a range of interest rates.

What Terms Do Private Loans Carry?

Private loans don’t have any specific definitions or guidelines to follow, aside from following U.S. laws regarding lending. There is a huge range of repayment terms, fees, and interest rates with this type of loan, and the specifics mainly come down to who you decide to work with.

What Are the Advantages of Hard Money Loans?

Many businesses use hard money lending because of the benefits it provides. You can evaluate the same factors for your business.

Fast Financing for Business Emergencies

Sometimes, a business needs working capital right away. For example, a piece of equipment may break down and need repairs. If this is one of your primary sources of revenue, you can’t afford to wait weeks or months to get money for it. The same situation can happen if you have a slow month and you need some help covering payroll or taxes.

Hard money loans can get approved in about 5–7 days max, and sometimes in just a few days. That’s much faster than traditional loans that require weeks for underwriting, credit checks and meetings. You can get working capital to cover business emergencies without problems.

Fast approval is also important when you need a bridge loan for real estate. If you come across a great property from a bank auction, you need financing quickly to close on the real estate before other buyers can get their hands on it. Many house flippers rely on bridge loans to make solid profits from house sales.

Simple Application Process and Qualifications

Another advantage of ABL financing is that you don’t need to dig up tons of financial records. Often, the documents you mainly need are related to the business asset you’re choosing as collateral. There’s no credit check to worry about.

Compare that to traditional loans (and many private loans) and you can see why this option is so popular with small business owners. Most banks want to see years of profit-and-loss forms, tax returns and other financial documents, in addition to hard credit pulls. It takes time to gather all those records, and filling out the application can be a major headache.

Low Credit Score Requirements

One of the biggest differences between hard money loans and traditional loans are the credit rating requirements. With a bridge loan, your credit score doesn’t matter. Alternative lenders don’t even run a credit check with this type of loan. It’s not necessary because collateral reduces the risk of lending.

This is very different than the credit history requirements of most banks. They often require a nearly spotless credit history and a high credit rating. Sure, businesses can get excellent interest rates if they have excellent credit, but if not, banks won’t even consider the application.

Flexible Loan Terms

Compared to traditional loans, hard money financing is amazingly flexible. With conventional lenders, it’s your company that has to adapt to the terms of the loan you’re offered. You don’t get much of a say in interest rates, repayment terms, down payments or additional fees. You either have to accept the loan agreement or find another lender.

With ABL financing, the opposite is true: Hard money lenders are happy to adjust the terms of the loan so it’s more comfortable for your particular business operations. Seasonal businesses can get repayment terms that fit the ups and downs of their schedules. You can negotiate for things such as a longer loan length, no prepayment penalties or lower monthly payments.

No Rules for Spending

When you use business assets to get a loan, you don’t have to worry about rules from banks telling you how to use the money. You simply receive a lump sum right away that you can spend however you want. There are many things you can take care of with extra working capital:

  • Inventory purchases
  • Operating costs
  • Website development
  • Digital advertising
  • Real estate purchases
  • Remodeling costs
  • New computer systems or equipment

This is different from bank mortgages or small business loans. Those financing options come with very specific limits you have to follow, sometimes requiring you to submit receipts showing how you spend the funds.

Pros and Cons of Private Loans

How do private loans stack up against hard money financing and traditional loans? Let’s start with the advantages:

  • Funding for investments that are too risky for banks
  • Flexibility for loan terms and monthly payments
  • Low credit score requirements
  • Ability to spend money the way you want
  • Possibility of very low interest rates

The truth is that there is a huge range of possibilities with private lending. If you get a loan from a friend or family member, you may not pay much in interest, which can save you a lot of money in the long run. At the same time, private lenders often don’t have a huge pool of funds to draw from, so your loan may be on the small side.

Risks of Private Lending

A large downside of private money is the issue of trust. It’s wise to be careful when approaching any loan, but you need to be especially cautious with private lenders. Otherwise, you may end up with a loan that looks good at first but has hidden penalties in the fine print that leave you with huge debts. If you decide to go this route with friends or family, make sure to put everything in writing to avoid any disagreements in the future.

What Are the Terms for Hard Money Loans?

The specific terms depend on the asset you choose, its value and the repayment schedule that works for you. There are many options for repayment terms, generally lasting from six months to a year. ABL financing is designed as a short-term funding solution. As for the total loan amount, or LTV ratio, this is usually around 60%–80% of the asset’s as-is value, though this range can vary with the market.

Hard money loans have a higher interest rate than long-term loans, but they’re also much easier to qualify for. Businesses that have trouble getting approved for traditional loans can often get ABL financing without issues. Many large and small businesses in Florida like this type of alternative financing because of its incredible flexibility.

How Can You Decide If Hard Money Loans Are Right for Your Business Needs?

Like any type of financing, asset-based loans have pros and cons. A trustworthy hard money lender should take the time to answer your questions and explain the terms clearly. At HML Solutions, our financing professionals have been helping Florida businesses for a long time. That’s why we have a great reputation. Contact us today to learn more about this flexible financing solution.

Refinancing an Inheritance Property with a Hard Money Loan

Refinancing an Inheritance Property with a Hard Money Loan

When you inherit a property after a loved one passes away, you become responsible for the mortgage. This can sometimes be problematic if you share the property with one or more co-heirs or do not have the funds to cover the monthly mortgage payment. If you need to refinance an inheritance property for any reason, securing a hard money loan from a reputable lender can help.

Why Might You Need To Refinance an Inheritance Property?

Mortgage loans have a due-on-sale clause that requires the loan to be paid in full before the property can be transferred to another owner. The only exception to this rule is inheritance property; federal regulations prevent lenders from invoking this clause when the property is inherited. 

If you are the co-heir of a property, you and the other beneficiaries must reach an agreement on what to do with the property and who is responsible for paying the mortgage. You must buy out the other co-heirs if you want to have full ownership of the inherited property. You may need a large sum of money up front to buy out any co-heirs, and a hard money loan is a quick financial solution that can be paid back quickly and has flexible terms.

Being the sole heir of an inheritance property makes transferring ownership of the property easier. You may assume the mortgage payments of your late loved one. If you cannot afford the monthly payments, refinancing the mortgage loan can help.

How Can You Refinance an Inheritance Property?

If you need to refinance a late loved one’s property, you must first determine whether you are the lone heir or a co-heir. This information can be found in the will of your late loved one. Use the following steps to refinance the mortgage and then use the money you receive to buy out any co-heirs if necessary:

  1. Add your name to the mortgage deed
  2. Compare refinancing rates with various lenders
  3. Get a home appraisal
  4. Secure a lower monthly mortgage

What Options Do You Have Besides Refinancing an Inheritance Property?

If you cannot reach an agreement for refinancing, you may choose to assume the current payment. You may also ask for a loan modification or rent or sell the property to cover costs.

How Can a Hard Money Loan Help You Refinance an Inheritance Property?

A hard money loan is a quick form of financing with flexible terms. You can secure the money you need quickly to cover a large mortgage payment or buy out co-heirs. Repayment periods are usually short, and hard money lenders are usually willing to work with borrowers who have less-than-perfect credit scores.

When you need to buy out co-heirs to gain full ownership of an inheritance property or need a large dum of money to afford a new mortgage payment if you are the sole heir of an inheritance property, a hard money loan may be the right financial solution for you. HML Solutions offers hard money loans with competitive terms, so if you are interested in securing this financial solution to refinance an inheritance property, contact us today to apply.

How Bridge Loans Help 4 Industries in Florida

How Bridge Loans Help 4 Industries in Florida

There are many different industries in Florida, but what they all have in common is a need for capital. Regardless of whether your company handles sales, manufacturing, construction or another area of business, you need funds to increase growth. Bridge loans are an amazing tool for increasing your company’s working capital on demand. This type of financing is popular with Florida companies of every size, from small businesses to large corporations.

What Are Bridge Loans?

Before we get into the specifics of what type of industries benefit most from bridge financing, it’s helpful to understand more about this type of funding option. Put simply, a bridge loan is a short-term loan designed to provide flexible working capital quickly. Sometimes, bridge financing is used to handle business emergencies, but most of the time it’s simply an everyday financial tool that companies use to manage their cash flow.

What Industries Benefit the Most From Bridge Loans?

Many companies like the freedom that gap loans provide. In Florida, bridge financing is especially helpful for four industries.

Manufacturing Businesses

Manufacturers have a front-loaded business model. They have to invest money at the beginning of a project to purchase a large number of raw materials for production, in addition to paying dozens or hundreds of employees.

These businesses don’t get paid until after the production process is finished, goods are shipped and invoices are paid. This timeline can last over a month from start to finish.

Gap financing can be an enormous help. With a bridge loan, manufacturers can get sufficient capital to pay for raw materials, cover payroll and take care of operating expenses. Once the client pays, a portion of the revenue can pay off the financing and the rest is profit.

Construction

Another industry that has an ebb-and-flow relationship with income is construction. From general contractors to electricians, virtually all construction businesses have to purchase materials at the start of a project, take care of necessary permits and pay a large team of employees and subcontractors.

Contractors usually don’t receive payment until the project is complete, which can put a squeeze on available capital, especially if unexpected problems such as mold appear. Fortunately, with bridge financing, construction businesses can keep operating smoothly no matter what.

Real Estate

Real estate businesses, house flippers and develops use bridge financing a little differently. Here, the objective is to get a large amount of capital quickly to close on the property. After that, it’s possible to transfer the short-term loan balance to a long-term loan, or sell the property and pay off the bridge loan with the proceeds.

Service Industries

Several companies fall into this category: landscapers, plumbers, janitorial companies, HVAC contractors, interior designers, automobile repair shops — even doctors. Many of these businesses have cash flow issues, especially small businesses. Bridge loans help stabilize your cash flow and provide money to keep running your company without problems.

How Can Bridge Loans From HML Solutions Help Your Business?

Get the financing you need quickly and easily. Make decisions that benefit your company without constantly having to check if you have sufficient funds available. Contact our team right away to learn more.